Jobs Now: Make Obama’s Priority Reality and Expose the Lie of Lazy Laborers

President Obama gave a major speech today on his legislative agenda. He said that the overriding national priority had to be jobs. We agree. David Brooks published an op ed today calling on the Republican Party to become "The Party of Work." He put his primary message in his final paragraph for emphasis.

"Don't get hung up on whether the federal government is 20 percent or 22 percent of G.D.P. Let Democrats be the party of security, defending the 20th-century welfare state. Be the party that celebrates work and inflames enterprise. Use any tool, public or private, to help people transform their lives."

Other than the gratuitous and inaccurate slap at the Democratic Party, we agree. The problem is that Republicans and Democrats are pushing a "Grand Bargain" that would reduce jobs. (The so-called Grand Bargain would also produce a "Great Betrayal" that would begin the process of shredding the safety net. I have written separately about the betrayal and will be producing additional articles opposing that action. This article focuses on the austerity component of the proposed Grand Bargain.)The Republican and Democrats are incoherent about austerity. The immediate context for the budgetary discussion is the Congressional Budget Office (CBO) report on the "fiscal cliff." The fiscal cliff is a misnomer because it is not a cliff. It is a product of the deal made on the debt limit. It would produce (gradual) decreases in spending and tax increases that would begin to take effect in January 2013. The gradual nature of the decreases in spending and the near certainty that any tax reductions Congress make in 2013 will be made retroactive to the beginning of the year combine to mean that the fiscal cliff is a gradual decline into a self-destructive policy of austerity. We have months to prevent the self-destruction.

The CBO, of course, knows Congress very well and knows that there is no fiscal cliff but that there is political advantage to be gained from warning that absent Congressional action there would be a disaster. The CBO deliberately issued its report immediately after the election to attempt to create a sense of Congressional urgency and push the adoption of the Great Betrayal.

The internal inconsistency of relying on the CBO report to adopt austerity should be clear, but is almost entirely ignored by the Beltway types. I spent nearly two hours listening to MSNBC's midday coverage of the issue without hearing a single journalist, commentator, or politician recognizing the incoherence. The CBO report's primary thrust is that if Congress took no action during 2013 to reduce the tax and spending austerity measures that begin to take effect in 2013 then the result would be a serious loss of jobs and a gratuitous recession. We agree. The Obama administration says it agrees. The Republicans are indicating that they agree.

Let's step back and analyze the implications of that paragraph. What follows relies on the views expressed by the proponents of austerity and the Great Betrayal, logic, and coherent economic theory and experience. Virtually everyone powerful inside the Beltway is not saying that they agree that "austerity now" (i.e., prior to achieving economic recovery from the Great Recession) would be a terrible, self-destructive policy. We agree. Keynes has again proven correct. Europe adopted austerity and needlessly and destructively hurled the Eurozone back into recession. We would have to be insane to engage in such financial suicide.

This means that "austerity yesterday" – earlier in the effort to recover from the Great Recession – would have been even more disastrous. It would have forced the U.S. back into recession and caused a substantial increase in unemployment.

The U.S. came exceptionally close to adopting austerity in 2011 through the "Great Bargain" negotiated by Speaker of the House Boehner and President Obama. The 2011 version of the Great Bargain would have imposed draconian austerity and begun the Great Betrayal of the safety net. Austerity results from budget cuts and tax increases, and the 2011 Grand Bargain was designed to impose both forms of austerity. Boehner described the massive budget cuts that he and Obama agreed upon in July 2011.

"In the ensuing days, the two sides forged common ground on a two-stage strategy for raising the debt limit and cutting more than $4 trillion out of the federal budget through 2021."

"Obama said he also put $650 billion in reductions to entitlement programs on the table, along with sharp cuts to government agencies, causing consternation among Democratic lawmakers and forcing him to 'take a lot of heat from my party.'

House GOP leaders have repeatedly pulled the plug on efforts to forge agreement on a plan to control the national debt, Obama said. Democratic leaders had been willing to consider provisions that would have caused them considerable political pain among the elderly, unions and the party's liberal base, he added. He also emphasized his willingness to compromise, noting that 'I've been left at the altar now a couple of times.'

"This is not a situation where somehow this was the usual food fight between Democrats and Republicans. A lot of Democrats stepped up in ways that were not advantageous politically," Obama said. He noted that he had offered to make further cuts to Medicare, even after Republicans denounced Democrats in last fall's midterm campaigns for cutting Medicare as part of their overhaul of the health-care system, saying, 'We've shown ourselves willing to do the tough stuff on an issue that Republicans ran on.'"

Consider what would have happened in the 2012 elections had Obama struck the Grand Bargain (more accurately, the Great Betrayal) in July 2011. The austerity would have thrown the nation into a gratuitous recession. The CBO says that a far smaller austerity program, delayed by over two years (2013 v. 2011) to a date where the economy is less vulnerable to a renewed recession, would throw the nation back into recession and cause a substantial increase in unemployment. The 2011 Grand Bargain, therefore, would have caused us to fall into a deeper recession and it would have done so more quickly than would the possible tax increases and spending cuts that would phase in during 2013.

The gratuitous second recession would have begun in late 2011 and deepened during 2012 due to the 2011 Great Betrayal's austerity provisions. Unemployment would have gone up – and the unemployment rate in July 2011 was 9.1% so the unemployment rate would be well over 10% and would have been increasing throughout election year 2012.

In addition to the austerity-induced second recession, Obama would have agreed in the Great Betrayal to large cuts in the safety net. He would have adopted the Republican Party's false claims that the safety net was unsustainable and a grave threat to the nation. This would have made it safe politically for the Republicans to make drastic cuts in the safety net as soon as they controlled the Senate. That is why the faux Grand Bargains are really the Great Betrayals.

The combination of the second recession, unemployment above 10 percent – and rising – and the Great Betrayal of beginning to unravel the safety net while making severe cuts in government programs that the Democrats strongly support would have caused catastrophic election losses to Democratic Party candidates in 2012. Obama would have lost by huge margins. The Republican Party would have taken control of the Senate and greatly expanded its majority in the House. Obama would have been thrown from office as the Great Failure and the Great Betrayer.

None of the problems I have described would have been avoided if the Bush tax cuts for the wealthy were repealed. None of the problems come from "unbalanced" austerity (e.g., far more program spending cuts than tax increases) – they come from austerity. Tax fairness is not irrelevant, but a "balanced" system of (net) tax increases combined with program cuts would send the nation back into a recession.

The U.S. could increase taxes on the wealthiest Americans and offset that tax increase with tax reductions to non-wealthy Americans. The most efficient way to do this is to again stop collecting the payroll tax. Workers bear the economic cost of the "employer's contribution" as well as their own "contribution." The Social Security tax is our most regressive tax. It has the advantage of putting money in people's accounts almost immediately. The combination of these factors makes the cessation of collection far more effective in stimulating growth than reducing the marginal income tax rate for the wealthiest Americans. Geithner, however, has indicated that the administration did not wish to resume a policy of waiving collection of the Social Security tax. Waiving the tax has no effect on Social Security payments to beneficiaries or the health of the system. Larry Summers opposed Geithner's position, but Obama adopted Geithner's view. Geithner's view was the bipartisan consensus, proving that beltway blindness remains the norm.

Guess who insisted on creating the fiscal cliff and ensuring that it had a "trigger" that made it automatic absent a Great Betrayal? That would be Obama – with the full support of the Republicans. Obama insisted on mandating austerity, particularly cuts in Medicaid and Medicare, if austerity failed. That was significantly insane economically and politically. The people who caused the insanity now tell us we must end their insane austerity – by adopting the Great Betrayal and its austerity. "Incoherent" does not begin to capture the incoherence of both parties on austerity. The same Washington Post story cited above explains the setting of the 2011 decision to create the fiscal cliff.

"Another major concession: [Boehner's] offer had proposed boosting the debt ceiling just high enough to see the Treasury through March [2012], which would become the new deadline for Congress to approve the more difficult cuts to entitlement programs and to overhaul the tax code. The White House vehemently opposed that approach. Obama did not want to have this debate again in an election year. The White House wanted a "trigger" that would automatically raise taxes on the wealthy and cut health spending, an idea the Republicans opposed. For now, Boehner and Cantor agreed to give up their demand for a short-term debt-limit increase. But talks on the trigger would have to continue."

The obvious question, except that I haven't seen anyone ask it, is why Obama and Boehner would agree try to agree to a Great Betrayal that they knew (if you believe them now) would be certain to throw the nation back into recession and begin to unravel the safety net and then when they failed to reach agreement created another austerity program known as the "fiscal cliff." The obvious answer is that the administration and Boehner were clueless about basic economics.

In a Great Recession, demand is grossly inadequate to employ all the people who wish to and are able to work. If we (net) raise taxes we decrease already inadequate private sector demand. If we cut spending we cut already inadequate public sector demand. In either case we are adopting pro-cyclical fiscal policies that make the recession worse. The administration was warned repeatedly by economists that its stimulus program was vastly too small to counterbalance the horrific reduction in private sector demand caused by the financial crisis, the collapse of the world's largest financial bubble, and the Great Recession.

Treasury Secretary Geithner, who is not an economist and who has consistently demonstrated that he does not understand economics became Obama's principal economic advisor. Geithner was a Republican who became an Independent as a fig leaf. He disdained public sector spending, even in response to a Great Recession.

The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as [then chairwoman of the Council of Economic Advisers Christina] Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was 'sugar,' and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.

Wrong, Romer snapped back. Stimulus is an 'antibiotic' for a sick economy, she told Geithner. "It's not giving a child a lollipop."

In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration."

[I am deliberately relying primarily on articles from the Washington Post because it is hysterically dedicated to creating a "moral panic" about the budget deficit and the national debt. Klein's article made Geithner's views about stimulus known throughout the Beltway two months before the July 2011 Obama/Boehner negotiations on the Great Betrayal.]

The budget deficit is not a "crisis." The budget deficit is a symptom of the Great Recession. In a severe recession government revenue falls sharply as unemployment grows and causes personal and corporate income, sales, and property values to fall. Demand for government services such as unemployment insurance and food stamps grow. The result is a large, rapidly growing budget deficit. The federal income tax is one of our "automatic stabilizers." It operates in a counter-cyclical manner (tax revenues fall during periods of strong economic growth and falls during a recession. The automatic stabilizers cause recessions to be less severe and the recovery from recessions prompter. The federal budget deficit is too small. You did not misread that sentence. It is a logical consequence of the CBO's reasoning in warning in its November 2012 report against the austerity of the "fiscal cliff." We would have recovered more quickly from the recession if we had increased more substantially our governmental spending and reduced (net) taxes. Both parties' leaders purport to understand (hence their embrace of the CBO report) the suicidal nature of austerity, but both pander to the electorate by railing at the deficit. It is as dishonest as it is economically illiterate and it has created a massive barrier to getting the public to back rational policies. The U.S. has had much larger deficits (relative to our GDP) during and after World War II. Those deficits allowed us to defeat the Axis powers, recover from the Great Depression, attain full employment, extend the safety net, and achieve robust economic growth without destructive inflation.

The administration and Boehner are claiming that (a) austerity via the fiscal cliff (which they deliberately created) would cause a national disaster and that, therefore, (b) we need to reach an agreement (the Great Betrayal) with Boehner imposing austerity and beginning to unravel the safety net because austerity is the only way to avoid causing a national disaster. If that seems crazy to you, it's the Beltway herd that's crazy, not you.

Nations cannot determine whether they will run a budget deficit or surplus with any assurance. That is a necessary implication of the CBO report. The two seemingly obvious means to reduce a budget deficit are to increase taxes and cut spending. The Grand Bargain proposes to do both. CBO warns, correctly, that (net) increases in taxes and cuts in spending can reduce already inadequate private sector demand and public sector demand. This can cause (or deepen) a recession and increase unemployment and the size of the deficit. The idea that a nation can mechanically choose to run a budget surplus is an illusion.

U.S. federal budget deficits and the national debt are not "immoral," they do not imperil our children and grandchildren, and they do not allow China to control us. The opposite is true now. The opposite is true. When we adopt austerity and throw America into a second recession we cause millions of people to be unemployed. That throws millions of children to fall into poverty and to lose their homes. It causes budget deficits and the national debt to grow dramatically. If you care about children you should oppose the Great Betrayal as the greatest threat to our children. It is immoral to consign our children to the pain of a gratuitous recession or to unravel the safety net that they will need. China has no power over us due to debt. We have no trouble selling our debt at trivial interest rates. Indeed, we do not have to issue debt. The Fed routinely creates money via computer keystrokes.

It does not require "courage" to adopt austerity and attack the safety net. It requires shameful acts of cowardice in which we cut the programs most needed by those in need in order to benefit wealthy Americans and Wall Street (whose greatest dream is the privatization of Social Security – which would lead to Wall Street making hundreds of billions of dollars in additional fees).

I watched many hours of MSNBC's coverage of the fiscal cliff to see how that famously pro-Obama network was covering the proposed Great Betrayal. Only Lawrence O'Donnell (of six MSNBC hosts that I watched), noted that the fiscal cliff is not real. The others treated it as an imminent disaster. Every host, every journalist, and every other guest on the programs supported the Great Betrayal, which they always thought was unambiguously essential.

The full depth of MSNBC's know-nothing coverage of the issue was reached with Chris Matthews, who opined that what was essential was ignoring Paul Krugman because he was on "the far left." (Matthews then danced around that label.) At no time did any of the MSNBC hosts ask anyone with economics expertise whether austerity and beginning to unravel the safety net would be harmful or helpful to the nation. The logical incoherence I have explained was never mentioned. The only time an economist was mentioned was Matthews' fact and logic-free denunciation of Krugman. (Matthews did not explain why Krugman opposed the Grand Bargain.) Matthews' claim that what was essential was for Congress and the public to ignore a Nobel Laureate in Economics' warnings that what was being proposed was a bad plan that would harm America. Matthews said that Obama (a lawyer and politician) must tell Krugman, a Nobel Laureate in Economics, that he was going to ignore Krugman's economics warnings because "I'm President, you're a columnist." Matthews has again proved one of our family rules – it is impossible to compete with unintentional self-parody.

Krugman is also an economist with a strong record of predictive success. He is a passionate supporter of the Democratic Party, but his loyalty at all times is to America. Matthews views it as essential that we listen instead to advice from DC journalists, Wall Street, and an administration in which economic policy is made by Geithner – who believes that austerity is dandy and stimulus is candy. But why bring logic, expertise, and a track record of success into a discussion of such a vital issue.

It does not strike anyone at MSNBC as paradoxical that they know that the austerity deal Obama tried to negotiate with Boehner would have caused catastrophic damage to the nation, begun to unravel the safety net, doomed Obama's re-election chances, and led to the Republicans obtaining control over the Senate in the 2012 election. The MSNBC hosts (other than Lawrence O'Donnell) claim that the deal Obama then struck with the Republicans after his deal with Boehner failed created a "fiscal cliff" that imposes austerity that would cause catastrophic damage to the nation – and that Obama deliberately sought that "trigger" clause. Now, Obama and the MSNBC hosts and their guests think that in order to avoid the self-destructive austerity of the fiscal cliff it is vital that we sign off on a Great Betrayal that will impose disastrous austerity and begin to unravel the safety net. This is so crazed that it is essential to keep people panicked with the same nonsense always used to sell self-destructive austerity – the claim that "there is no alternative." Those of us (e.g., Krugman) presenting alternatives, alternatives that have proven vastly superior to austerity, must be ignored because journalists like Matthews have no ability to defend why we should be inflicting austerity on the nation and begin to unravel the safety net. Massive majorities of Americans oppose unraveling the safety net.

The attraction of the Grand Bargain to Obama is fame, as even the Washington Post (which views the Grand Bargain as divine) repeatedly emphasized. Obama knows that even his supporters view the Nobel Peace Prize he received as an embarrassment. He believes that his chance for greatness is reaching a Grand Bargain.

"From the White House point of view, those few days [of trying to negotiate the Grand Bargain with Boehner in 2011] show a politically selfless president willing to rise above the partisan fray and make difficult choices for the good of the country — if only obstinate Republicans would meet him halfway."

But interviews with most of the central players in those talks — some of whom were granted anonymity to speak about the secret negotiations — as well as a review of meeting notes, e-mails and the negotiating proposals that changed hands, offer a more complicated picture of the collapse. Obama, nervous about how to defend the emerging agreement to his own Democratic base, upped the ante in a way that made it more difficult for Boehner — already facing long odds — to sell it to his party. Eventually, the president tried to put the original framework back in play, but by then it was too late. The moment of making history had passed.

The actions of Obama and his staff during that period in the summer reflect the grand ambitions and the shortcomings of the president's first term.

A president who promised to bring the country together, who confidently presented himself as the transformational figure able to make that happen, now had his chance. But, like earlier policy battles, the debt ceiling negotiations revealed a divided figure, a man who remained aloof from a Congress where he once served and that he now needed. He was caught between his own aspirations for historical significance and his inherent political caution. And he was unable to bridge a political divide that had only grown wider since he took office with a promise to change the ways of Washington, underscoring the gulf between the way he campaigned and the way he had governed.

In the end, that brief effort, described by White House officials as the most intense and consequential of Obama's presidency, not only illuminated pitfalls in the road he had taken during the previous three years but also directed him down a different, harder-edged, more overtly partisan path that is now defining his reelection campaign."

The administration has emphasized the desirability of spending on infrastructure, a very limited jobs program, and green energy programs. Those can all be good programs, but the administration and Boehner should be emphasizing two broader programs. Obama says his top three priorities are: jobs, jobs, and jobs. Republicans say that our nation's central malady is that we have too many moochers who want benefits without ever having to work. The answer to Obama's central goal is simultaneously the conclusive refutation to the Republican libels of tens of millions of Americans. Obama needs a real jobs guarantee program for every American able and willing to work. There is no greater waste than leaving over 20 million Americans underemployed. Republicans' ideological fantasies about the unemployed cannot survive a jobs guarantee program. As millions of Americans signed up for the jobs the Republican myths about moochers would be destroyed for all time. Brooks is correct to call for the use of any private or public sector program that works to increase opportunity and success. If Obama proposes a national jobs guarantee program we will discover whether Brooks' call for the Republican Party to become "The Party of Work" will either cause them to support the plan or expose the lie in Brooks' proposed label.

The second major program the administration should fund is revenue sharing. The original stimulus plan had a major revenue sharing component. A coalition of conservative ("blue dog") Democrats and Republicans killed the revenue sharing component of Obama's proposed stimulus program. This was a travesty. A national government with a sovereign currency is not like a state or local government. It can and should run a deficit in response to a recession. A state or local government cannot do so. It was certain that state and local governments would suffer severe drops in revenues at the same time that the need for increased state spending to help the unemployed. The inevitable result was that state and local governments would have to fire over one hundred thousand workers and add to unemployment during the Great Recession. The win-win is revenue sharing – a Republican policy initiative. The federal government transfers hundreds of billions of dollars to the state and local governments, which allows them to avoid firing the workers and cutting social services when they are most needed. All of this allows the economy to recover more quickly and eventually reduces the deficit. It also makes America vastly more humane.

William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House Governance Committee on the regulation of executive compensation. He was interviewed by Bill Moyers on PBS, which went viral. He gave an invited lecture at UCLA's Hammer Institute which, when the video was posted on the web, drew so many "hits" that it crashed the UCLA server. He appeared extensively in Michael Moore's most recent documentary: "Capitalism: A Love Story." He was featured in the Obama campaign release discussing Senator McCain's role in the "Keating Five." (Bill took the notes of that meeting that led to the Senate Ethics investigation of the Keating Five. His testimony was highly critical of all five Senators' actions.) He is a frequent guest on local, national, and international television and radio and is quoted as an expert by the national and international print media nearly every week. He was the subject of featured interviews in Newsweek, Barron's, and Village Voice.

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